Stablecoins: Does design affect stability?

Gregory Gadzinski, Alessio Castello and Florie Mazzorana

Finance Research Letters, 2023, vol. 53, issue C

Abstract: Stablecoins recently emerged as a solution to mitigate cryptocurrency's volatility while preserving their advantages. Nowadays, various types of stablecoins with different protocol designs coexist. Whilst “custodial” stablecoins are secured by fiat money locked in funds, “non-custodial" stablecoins rely on cryptocurrency collateralization and/or algorithms to stabilize their value. The contribution of the article is twofold: we define new categories of stablecoins depending on the protocol architecture; secondly, using community detection analysis, we assess if price dynamics are affected by theoretical designs. Our results show that stablecoins’ price dynamics do not seem to depend on protocol design: some non-custodial stablecoins, including algorithmic ones, display similar dynamics than successful well-established custodial based tokens.

Keywords: Stablecoins; Protocol designs; Custodial; Collateralization; Algorithmic; Clusters; Communities (search for similar items in EconPapers)
JEL-codes: C19 C49 G10 G15 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:53:y:2023:i:c:s1544612322007875

DOI: 10.1016/j.frl.2022.103611

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